Investments in cryptocurrencies are promoted by many in social media. And it is worrying.
In the past few months, we are seeing a jump in cryptocurrency investments because young people are becoming more interested in crypto these days. Even though cryptocurrencies were perceived to be risky, now more people are becoming comfortable with these virtual assets. And the proof of this is in the following numbers.
According to Chainalysis, as mentioned by Bloomberg, Indians have invested nearly $6.6 billion (₹49,189 crore) in May of this year as compared to just around $923 million in cryptocurrencies in April 2020. Chainalysis also said that India ranks 11 out of 154 nations in terms of cryptocurrency adoption. According to the tracking website CoinMarketCap, the number of cryptocurrencies have doubled to 10,000 in the past year.
The reason behind the rise in investments could also be attributed to the increasing number of celebrities who are promoting cryptocurrencies in social media platforms. This is happening everywhere around the world.
Over the past year, many cryptocurrency exchanges in India like CoinDCX and CoinSwitch Kuber have partnered with celebrities from social media, sports, and Bollywood to promote cryptocurrency investments on social media. Stand-up comedians Tanmay Bhat, Samay Rain, and Aishwarya Mohanraj, Bollywood actors Radhika Apte, Kunaal Roy Kapur, and Manoj Bajpayee, YouTuber Ashish Chanchlani, internet content creators Kush Kapila, and Dolly Singh, vlogger Vishnu Kaushal, TV host Danish Sait, cricketers Ishant Sharma, and Dinesh Karthik, poet Priya Malik are some of the celebrities who have promoted cryptocurrencies on Instagram, Twitter, and YouTube.
Two months ago, Kim Kardashian, the influencer and reality TV show star, promoted a new altcoin called Ethereum Max. Former professional boxer, Floyd Mayweather, and YouTuber Logan Paul have also promoted altcoins. Young people, who are new to investing, and don’t understand the downsides of it, can be easily influenced by these celebrities.
One of the recent scams that shook everyone in the crypto world is the Save the Kids crypto scandal. FaZe Clan, which is a professional esports, and entertainment organization, headquartered in Los Angeles, have tens of millions of followers across their social media accounts, and video channels. In June, FaZe Clan made history as the first ever gaming organisation to appear on the cover of Sports Illustrated magazine.
In early June, four influencers from the FaZe Clan promoted a charity cryptocurrency token called Save the Kids. This token promised investors that their money would benefit kids, as each transaction would be taxed, and one to three percent of it would be donated to a children’s charity. The charity angle is a typical marketing scheme with a lot of these new altcoins.
However, hours after the cryptocurrency token was launched, its value crashed. Brayden LeBlanc, who invested in this token, told NBC News, “I feel like I’ve been played.” LeBlanc added, “These FaZe members are people that myself and millions of others look up to. We want to be like them.” LeBlanc’s words to NBC News show how thousands of youngsters like him buy cryptocurrencies that are promoted by their favourite influencer without realising the risks that come with it.
LeBlanc alleged the Save the Kids token was a pump and dump. So, what does that mean? Pump and dump is a manipulative scheme that tries to boost the price of a stock or security via fake recommendations. These recommendations are based on false, misleading, or greatly exaggerated statements. The perpetrators of a pump and dump scheme already have an established position in the company’s stock, and they will sell their positions after the hype has led to a higher share price.
Influencing The Young
Investments in cryptocurrencies are increasing, and so are the scams. According to a report this year by the Federal Trade Commission (FTC), since October 2020, over $80 million has been lost in crypto-related scams. As we have mentioned before, young people are more likely to fall prey to the scams, as the report also showed that people aged 20 to 49 were five times more likely to lose money in cryptocurrency investment scams than older age groups. In a report made by the UK’s Financial Conduct Authority, it was said that new, and younger audiences were engaging in high-risk investments like crypto, and were often driven by emotions, and feelings.
So, it is clear that more young people are investing in cryptocurrencies, and they are also losing money to crypto scams. But, cryptocurrencies are highly risky on their own, because they are not regulated by any institutions, and the money is not protected by any government or any other federal authority. However, the problem arises when influencers only talk about the benefits, and not the risks that come with cryptocurrency investments. And that is problematic.
Earlier in July, advocates Ayush Shukla, and Vikash Kumar filed a plea in Delhi High Court, arguing that risk disclaimer text on such cryptocurrency ads should cover 80% of the screen to warn viewers properly. Harish Bijoor, brand strategy expert and founder of Harish Bijoor Consults Inc. told Scroll, “Until the regulation is sorted, social media influencers must stay wary and even steer clear of participation.” Just like how mutual fund ads ask you to read the ‘scheme related documents carefully’, crypto ads should also give you a warning about how these investments are risky, as well as, volatile in nature, and how investors should be careful before investing.
Governments should also enforce new laws to regulate cryptocurrency advertising, and to hold the influencers responsible if they promote cryptocurrency investments without telling investors about the risks associated with them. These laws have to be enforced as soon as possible before this problem becomes big, and investors should do their own research before investing in any cryptocurrencies.